New report: over-65s now have more wealth than under-45s

David Kingman highlights some recent findings from the Resolution Foundation which show that the over-65s now hold more wealth than those aged under 45

The scale of intergenerational wealth inequality in Britain was recently revealed by a new piece of analysis from the Resolution Foundation (using data from the Wealth and Assets Survey) which shows that the combined share of the nation’s wealth which is held by households aged over 65 exceeds that held by households who are under 45 for the first time ever. What does this mean for intergenerational justice?

Housing and pensions

In 2010–12, recent retirees accounted for almost a fifth (19%) of the UK’s total household wealth, despite making up only 14% of all households. By contrast, the under-45s held just 16% of the UK’s total household wealth between them, which had fallen from 20% before the recession. The average wealth of a household aged under 45 in 2012 was £179,000, whereas for those aged 65–74 it was £540,000.

The key point which this finding illustrates is the gap that has opened up between an older generation who benefited from widespread access to housing and final-salary pensions and a younger one whose opportunities to accumulate these types of wealth have been far more circumscribed.

Given that many of today’s under-45s will be lifelong renters and will only ever have access to defined contribution pension schemes rather than defined benefit, these findings raise serious questions about to what extent the growing intergenerational wealth divide can be mitigated. Research by Professor John Hills of the LSE has previously shown that in order for today’s young working adults to catch up with the level of wealth which their parents have achieved throughout their lifetimes, they would need to save the equivalent of £12,000 per year – an unrealistic gap for all but the very wealthiest to make up.

Two key questions

Recognising the intergenerational wealth gap raises two questions for public policy to address. Firstly, it should open up further debate about whether the UK transfers too much money to wealthier pensioners in the form of universal benefits, at the expense of both poorer older people – who could receive more generous targeted support if less money was given to their richer counterparts – and the younger generations of taxpayers who fund them.

Recently, debate has intensified surrounding the so-called “triple lock” – the government’s promise to increase the state pension each year in line with whichever is highest out of earnings growth, CPI or 2.5% – as it has led to the value of the pension dramatically outpacing both wages and prices. Whether this arrangement is defensible in the face of Britain’s rapidly worsening intergenerational wealth gap is a dilemma which is sure to play out over the coming years.

Secondly, the big problem which seems to be lurking somewhat in the background of the debate about the intergenerational wealth gap is what impact this will have on social equality. David Willetts, the former Conservative government minister, referred to the likely impact of all this wealth being held by pensioners when giving his speech spelling out the new findings:

“What we see…is a considerable transfer of wealth from recent retirees down to their children and grandchildren, for instance by helping them to get on the property ladder.”

If many members of today’s younger generation will only be able to access the property ladder or start saving for a decent pension because of inherited family wealth (which can be passed on largely tax-free), then that will surely have a hugely negative impact on social mobility, which, at the moment, no political party seems willing to address through measures which would tackle it directly (such as introducing a more rational system of inheritance tax). The result is that the gap between the generations in terms of wealth seems likely to widen the gap within the current younger generation, paradoxically reversing much of the progress which initiatives such as encouraging mass homeownership were meant to achieve.